Being an entrepreneur means needing to execute a plan for the future of your business as it’s one of the most crucial tasks you need to do. Particularly in an industry with tough competition, you need to be smart and strategic. Thus, you may need to execute estate planning, especially when you’re growing your business.
Essence Of Estate Planning
Complex as it may seem, planning for your properties is necessary when you’re growing your business and expecting an expansion. Here are the reasons why:
- Guarantees Stability Of Family Business
You can gauge a person’s interest in an inheritance when an argument about it is brought up. If your business is composed of family members and you’re currently heading the management, can you imagine what’ll happen to your business if you die?
Much more when it comes to inheriting or managing your estate. If you want to prevent family disputes, you must plan who will replace you in the position if something happens to you. You might also want to decide already who gets to continue working for the company. Also, you might find it practical to specify an allocation of ownership for each family member.
If you die unprepared and with no established plan for the future of the business, the people who will most suffer are your family. Losses can be extreme to the company you’ve left behind.
When you plan, you can achieve peace of mind as you can tone down the losses experienced by your family and the business. If you’re unsure how to do it, you can hire estate planning experts.
You can work together with your advisor team to come up with a plan for business continuity. When you strategize, make sure the following items are met:
- Your family still enjoys their usual lifestyle
- Your business can still survive even if you’re no longer around to manage it
- A specific and necessary arrangement should you want to transfer the ownership of the business
- Value-based goals are still attained even if you’re no longer around
- Guaranteed stability of results when it comes to financial security, successor ownership, and your other goals
- Stipulates Buy-Sell Agreements
Whether you’re planning to pass the leadership to your business partners or running a sole proprietorship and planning to pass the baton to anyone from the family, it’s always best to prepare an agreement stipulating your will. By securing an agreement, you can ensure your business will continue to thrive and would be handled by trusted persons.
One way of preparing the agreement is to make a buy-sell agreement. It involves the different entities in the company arranging for buying up your interests if something happens to you. Moreover, setting up a buy-sell agreement will also help you secure your business against loss of profit and shoulder the costs needed to train a replacement.
You can set up a buy-sell agreement and implement it in the business anytime. However, it’s most logical to implement a buy-sell agreement when there’s a new partner in the business.
When choosing a buy-sell agreement, you can weigh what’ll be best for your business from these two major types:
- Cross-Purchase Agreement
With this agreement, the key employees get a chance to buy ownership interest. You can use this type if you have a small business where key employees are only limited.
- Stock-Redemption Agreement
This type of agreement comprises a formal arrangement between the key employees and the business. The agreement stipulates the authority of the company to buy the stock of a disabled or deceased key employee. Moreover, key employees are also allowed to sell their stock in exchange for cash.
There are several reasons why you must implement a buy-sell agreement in your business. Here are some of the benefits you can get when you make this agreement:
- It prohibits the partners, shareholders, or members from offering their share to individuals outside the company. Shares are first offered to the corporation, partners, or the remaining owners.
- It specifies the terms and conditions for buying or selling shares in the business.
- It offers a favorable formula when it comes to tax as it arrives at the fair price of the transferred share.
- It provides security to the stakeholder and owner in terms of share allocation.
- Lowers Tax
When trying to make effective planning, one thing you’ll first consider is the tax. When you die, your beneficiaries may also feel the financial burden of settling your taxes.
If you focus on implementing steps in lowering the amount of taxes, you can secure the majority of your assets. And when this happens, your family also gets to benefit from these. You can do this by planning your estate for your business.
- Protects Asset
Most importantly, a plan can help you protect your business. You should know from the start being an entrepreneur involves risks and hazards. Thus, you shouldn’t only focus on gaining profit as you must also work to secure your business against lawsuits and claims. If you fail to manage the challenges, you might end up losing your business and even your assets.
If you can determine your business’s potential risks and develop an early plan to prevent them from happening, you’ll have a better chance of surviving in the industry.
An asset protection plan can help you by essentially reducing the risks your business may face. As a result, you can seclude your business against the claims of creditors.
If you truly value your investment and your hard work when you started building up your business, you must consider doing estate planning. Since nothing in life is certain and you’ll never know when you’ll pass away, you can prepare your business to face such a situation with a proposition.
With estate planning, you can secure your business. This also gives you peace of mind knowing your family members are still financially protected even in your absence. While you’re still capable of planning for the future, find an expert to help you with your planning.